Parents are naturally inclined to help their kids out any way they can, and this doesn’t stop even their child is already an adult. But up to what extent should you help your child? Should you agree to cosign a mortgage if your adult child asks you to, considering that you’ll be putting your financial health at risk should your child default on the mortgage?
If you really can’t say no to your child, the best way to go about being a cosigner is to have a solid backup plan.
Make Sure you have Ample Protections in Place
If you decide to cosign on your child’s mortgage, agree with your child that details what would happen if your child defaults on the loan for any reason, payment details, as well as when to sell the property. Even if your child is financially responsible, ensure that your child is the primary of the mortgage and not you, suggests Altius Mortgage Group, one of the top mortgage brokers in Salt Lake City. Also, consider having him or her take out an insurance plan as a safeguard for you, he says. You child should ideally get life and disability insurance coverage if a widowed daughter or son-in-law has to remain living in the property, or if your child needs to stop working due to a disability.
The payments from the insurance would aid in safeguarding your credit rating and borrowing power in the future if your child becomes disabled or passes away. However, these safeguards wouldn’t ne of any use if your child becomes jobless, so make certain that your child has a budget plan in place for making the monthly mortgage payments and spends his or her money wisely.
Also, you should have your name on the property’s deed, and don’t forget to take into account future or present spouses. Seek your attorney’s advice on having your child and his or her spouse sign a quitclaim deed to you so that you would be protected if they separate or get divorced or make late payments, so you wouldn’t have to deal with your child’s potential ex-spouse.
The Bottom Line
You could yes or no to being a cosigner on your child’s mortgage, but know that your child isn’t entitled to your financial security when it comes to this huge decision. And don’t be forced or coerced into doing so. But if you want to help your child and are confident that he or she could handle a mortgage, with your help, of course, just make sure that you have the proper protections in place.